The No Surprises Act: When negotiations break down
Does the No Surprises Act sabotage efforts to achieve equitable network arrangements?
Editor’s note: This is the second installment of a three-part deep-dive dive into the nuances of this much-heralded piece of health care reform. Catch up on the first one here.
In direct opposition to the philosophy underpinning reference-based pricing (RBP), the No Surprises Act (NSA) does not reference any objective payment standard. In other words, there is no universally agreed-upon standard the parties can use in determining a fair payment. It should be noted that setting these payments exclusively via arbitration is a departure from initial proposals advanced by the Senate Health, Education, Labor, and Pensions Committee and the House Energy and Commerce Committee in 2019, which would have instead directly specified a “benchmark” payment rate equal to the median in-network rate for similar services. Using arbitration was a key demand of provider groups.
This, then, is the crux of my concern regarding the NSA. The purpose of the NSA is to encourage payers and providers to pre-negotiate rates as much as possible. Indeed, it is fair to say that the NSA punishes the payer and provider for not being in-netowrk (IN). Yet, at the same time, it sabotages efforts to achieve equitable network arrangements.
Related: New York ER doctors sue UnitedHealth over out-of-network claims
First, it places emphasis on median network rates. Providers, knowing that the rates to which they agree when creating networks will impact how much they and other providers receive from OON payers, will be less willing to offer fair rates – inflating IN rates in an effort to likewise inflate the median used when pricing allowable OON payments. Second, when the alternative to a network arrangement was balance billing, most providers recognize that balance billing patients is not a fruitful endeavor. Most patients lack the financial capacity to pay the balance, burdening the provider with bad debt and worse public relations.
A power shift
The knowledge that balance billing is the only option available to the provider should they fail to negotiate with the payer was a key incentive when it came to negotiating out-of-network (OON) balances with providers. It was also a reason why providers were loathe to leave the negotiation table when payers attempted to negotiate fair network deals. The alternative to a network was balance-billing patients. Now, however, providers will be more willing to leave the table and forego a network, knowing that the alternative to a network deal – post NSA – is not balance billing, but rather, IDR and subsequent payment of a favorable amount from the plan or insurance carrier (whose pockets are deep).
In other words, supporters of the NSA say that the initial hope is that payers and providers will try to resolve payment disputes on their own. This initial “step” in the process, heralded as a novel step forward, does nothing more than document what most payers are already trying to do and have been trying to do for some time. When a patient is balance-billed, a benefit plan rarely ignores their plight, and already seeks to resolve the matter with the provider – despite the plan not “technically” having an obligation to pay anything more. All the NSA has done is incentivize providers to demand an excessive amount, refuse to negotiate, and leave the table. The alternative to a negotiated payment – once a terrible alternative (balance billing patients) – is now favorable to, and not at all feared by, providers.
Herein lies my concern – when the provider has a right to pursue payment from a patient (balance bill), and a payer has a right to cap what they will pay, both parties have something the other wants. The provider wants to be paid promptly, by the plan (whose pockets are far deeper than the patient). The provider recognizes that they are not guaranteed payment from the patient, and thus they are incentivized to work with the plan – applying the adage that “a bird in the hand is worth two in the bush.” The plan, meanwhile, wants to protect their plan member from balance billing. Thus, even though they have paid all they are required to pay, the plan is compelled to pay more to protect the plan member. As a result, as mentioned above, both parties have something the other wants, and have a reason to negotiate in good faith.
In a new world, where the plan will be required to pay more–either a smaller amount proposed by the plan, a larger amount proposed by the provider, or some negotiated amount in between –the “threat” of the plan walking away without paying anything additional (a right the plan had pre-NSA) is stripped away, giving the provider more negotiation power and the plan less power than was the case. For this reason, the proposed rule hurts rather than helps negotiation efforts.
Interestingly, as mentioned previously, when an OON claim is initially received by a plan or insurance carrier, they will pay per the terms of the plan document or policy. This means their current OON pricing methodology is not “dead.” Yet, many payers are asking why they should not change their methodology to match the median network rate. Their theory is that regardless of what they initially pay, providers will assume that – by the time IDR concludes – the payer will be paying that amount (the median network rate) to the provider.
So, why not cut to the chase and pay that amount right away? Yet, for the reasons discussed above, we can expect that amount (the median network rate) to increase exponentially. This creates a “damned if you do, damned if you don’t” scenario for the payer: pay a fair amount for OON claims up front, endure IDR, and lose – thereby paying the median network rate, or pay the median network rate now?
How could this be allowed to happen? As one reviews the proposed rule, one realizes that certain assumptions are in play. First, that benefit plans universally underpay claims when they are OON. Second, that benefit plans will never negotiate or pay anything additional when a participant is balance billed. As such, a law (politicians believed) was required that will scrutinize what the plan paid and will force the plan to pay more.
For plans that already pay an objectively fair amount for OON claims, and already engage in good-faith negotiations to protect patients from balance bills, these assumptions should be offensive, and the resultant rule should horrify.
Home-team advantage
Further worrisome is the so-called arbitration that ensues if a negotiation fails. The style of arbitration is “baseball arbitration;” a process where the arbiter is stripped of their power to steer the parties toward a middle ground and is instead forced to pick one of two amounts – one proposed by each party. This puts the payer in an unenviable position of choosing whether to offer a too-small amount (including nothing additional, even if it seems fair to them, for fear of offending the arbiter and losing before they even begin) and offering an amount that is excessive (in hopes of at least avoiding payment of an amount the provider demands – which will be even worse). Many will not want to offer a too high amount, for fear that they will call their original payment (and logic behind the payment) into question, as well as embolden providers to increase their rates in response.
This, then, leads to another concern. If payers will be forced to pay “something” additional, why should providers avoid increasing their rates?
All involved in this proposal explicitly agree that this process is more favorable to providers. It is why they supposedly added so-called “guardrails” to help ensure that the arbitration process is not abused.
First, as mentioned previously, payers and providers must engage in 30 days of negotiations, prior to requesting arbitration within 48 hours of the final day’s passage. This supposed guardrail only benefits providers. Presently, “pre-NSA,” plans that pay the maximum amount according to their controlling document seek to negotiate solely to protect their plan member from balance billing. They, until now, gained nothing else from paying more. Providers, on the other hand, are seeking financial gain. Also as previously discussed, prior to this rule the threat that the plan could walk away, and the provider could be forced to pursue the patient – and likely get nothing additional – was an incentive to negotiate in good faith. Now, with the arbitration “light” shining at the end of the 30-day “tunnel,” providers will demand 100% of billed charges, refuse to negotiate, and simply await arbitration. In other words, in a world where payers will be forced to pay more, and providers are not punished for charging excessive amounts, there is no downside to charging more, ignoring negotiations, and waiting for arbitration.
The man in the middle
A rule that some say will prevent the overuse of the arbitration process is that the losing party will be responsible for paying the administrative costs of arbitration. Of course, those in our industry recognize that – for the reasons explained above – even if the provider loses (and is forced to pay the costs of arbitration) the savings providers will enjoy from not balance billing (costs of collections activities) and the plentiful victories they enjoy in other IDR cases, will outweigh the occasional loss and corresponding administrative costs.
Arbitrators, meanwhile, have the flexibility to consider a range of factors, but unfortunately, none of those factors are objective. They will be forced to limit their examination to only factors raised by the parties, and – significantly – not what the provider usually accepts from other payers. Additionally, the arbitrator is not supposed to review the billed charges (the chargemaster rate), but – assuming the provider is seeking payment of their charges in full via arbitration – that limitation is irrelevant.
Optional factors that an arbitrator could consider include, among others, the level of training or experience of the provider or facility, quality and outcomes measurements of the provider or facility, patient acuity and complexity of services provided, and teaching status, case mix, and scope of services of the facility. We question whether the payer will have an opportunity to challenge these metrics, or – as it appears to be presented – whether this is simply an open invitation for the provider to justify their demands.
One factor arbitrators can consider that should favor payers is the market share held by the out-of-network health care provider or facility, or by the plan in the geographic region. As we know, one factor that has contributed to the exponential growth in provider billed amounts is the present health system oligopoly. A few massive health systems are buying up smaller systems, and in any geographic region it is rare to find any competition.
Additional factors that the arbitrator may consider, and which are both beneficial to payers as well as uniquely worrisome, are any good faith efforts by the provider to join the plan’s network. For plans that do not use a network (i.e. RBP plans), will this be held against them?
The last, and perhaps most relevant factor for mediator consideration is past contracted rates, and median in-network rates. We’ll delve more into that tomorrow.
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